Geithner Calls Tax Gaffe 'Careless Mistake'

Jan. 21, 2008 — -- New York Federal Reserve Bank President Timothy Geithner, President Obama's pick for Treasury secretary, said today at a hearing before the Senate Finance Committee that his failure to pay $34,000 in income taxes was a "careless mistake" that he regrets.

"These were careless mistakes. These were avoidable mistakes. But they were unintentional," Geithner said.

According to documents compiled during the nominee's vetting process and released by the committee Jan. 13, Geithner failed to pay $34,000 in self-employment taxes for money he earned from 2001 to 2004 while working for the International Monetary Fund.

Geithner pointed out that he has corrected the mistakes and paid the back taxes, totaling $48,268 in taxes and interest, and he apologized that the committee has had to spend so much time on this issue when there are more pressing concerns.

He expressed regret that he did not "ask more questions" and said he "thought about it more carefully" when he was audited by the IRS in 2006.

Geithner said he used Turbo Tax to prepare his faulty returns but told the committee "these mistakes were my responsibilities, not the software I used."

Some senators expressed concern over someone who did not pay his taxes being in charge of the IRS.

"It's hard to explain to my constituents, who pay these taxes on a regular basis," Sen. Jim Bunning, R-Ky., told Geithner.

Sen. Pat Roberts, R-Kan., said that while his phones were "ringing off the hook" from people in Kansas upset about Geithner's personal tax missteps and his possible confirmation, he still believes the nominee will be approved by the committee.

In his opening statement, committee Chairman Max Baucus, D-Mont., said he supported Geithner's nomination and believed that his tax gaffes were "disappointing mistakes."

"But after discussing them with Mr. Geithner, I believe them to be innocent mistakes," Baucus said. "I believe that Mr. Geithner has sufficiently corrected the errors. And I know a man of Mr. Geithner's talent and dedication will be meticulous on these points in the future."

Baucus went on to say that he is confident Geithner is "up to the job" and will succeed, if confirmed, in helping America "emerge with renewed strength."

Geithner faced several questions from senators about how the $700 billion financial bailout plan has been spent.

Geithner also said that Obama and he "share your belief that this program needs serious reform."

"This is an important program and we need to make it work," he said. "We're going to keep at it until we fix it."

"Our test is to act with the strength, speed and care necessary to get our economy back on track, and to restore America's faith in our economic future," Geithner said.

Following a 2006 IRS audit of his tax returns from 2003 and 2004, Geithner paid approximately $16,000 in owed taxes. Then, following news that Obama intended to nominate him for Treasury secretary in late November, Geithner voluntarily amended his 2001 and 2002 tax returns, resulting in payment of additional taxes of $18,000.

In addition to owed taxes, the committee found that Geithner had employed a household worker whose legality in the country had lapsed for 3½ months in 2005.

For a man who would spearhead the administration's efforts to revive the nation's foundering economy, create new regulations to oversee the financial industry as well as work to establish new trade policies with foreign partners, such as China, should he be confirmed, his inability to pay his taxes spurred speculation as to whether he was suitable for the job.

Obama has maintained he believes Geithner will still be confirmed by the committee despite his "innocent mistake."

"Look, is this an embarrassment for him? Yes. He said so himself. But it was an innocent mistake," Obama said. "My expectation is that Tim Geithner will be confirmed."

Sen. Charles Grassley, R-Iowa, the senior finance Republican, called Geithner's news "disconcerting" in a press conference with reporters.

"It's a little disconcerting," said Grassley. "I'm not saying at this point it's disqualifying.

"But it's a little more important about income tax for somebody that's overseeing the IRS than there is, maybe, for the secretary of agriculture, as an example," said the senator.

Former Almost-Nominees Discuss Geithner

Geithner's predicament -- accepting a nomination for a position that would leave him to steer the president's economic policy, despite his own financial missteps -- mirrors that of several other nominees from years past, many of whom have erred in ways that some argued were in opposition to the principles of the positions they were chosen to hold.

In 1993, President Clinton nominated lawyer Zoe Baird as his first choice for attorney general. But Baird, who would have been the country's first female attorney general, withdrew her name after it was discovered she had hired illegal immigrants as household helpers and also failed to pay their Security taxes.

Clinton's next choice for AG, federal judge Kimba Wood, was also removed from the running after it was disclosed that she, too, had hired an illegal immigrant as a baby sitter.

Linda Chavez, George W. Bush's choice for labor secretary in 2001, also knows what it's like to be in Geithner's shoes: Chavez withdrew her name from consideration after news broke that she had allowed an illegal immigrant to live in her house during the early 1990s.

But when asked why she allowed her nomination to progress as far as it did, knowing events from her past would almost certainly be uncovered during the vetting process and used against her, Chavez told ABCNews.com that, at the time, she truly believed she had done nothing wrong.

"[Marta Mercado] was in desperate need. She needed a place to live more than I needed to be secretary of labor," said Chavez. Mercado was the illegal immigrant from Guatemala who lived with Chavez and eventually led to Chavez pulling her name out of the running for the nomination.

"I didn't think it was a big deal," said Chavez, who said today she realizes it was her own fault for not being forthright with the transition team about her relationship with Mercado.

Chavez said she is not sure what Geithner was thinking but anticipated he would have a lot of explaining to do in front of the committee.

Another individual who has been through a similar situation as Chavez and now Geithner, and asked that his name not be revealed, told ABCNews.com that he empathized with Geithner.

"I feel sorry for anyone going through this process who makes an error or mistake because their critics -- political or personal -- will immediately go on the attack, they will feed the press and media, and that will feed some investigator somewhere to begin an unbearable investigation into every detail of your life," he said.

This person called the confirmation process Geithner is about to face "overbearing" and "embarrassing" but said if Geithner's actions were truly mistakes, as he claims, the nominee should push forward and not give up.

"Just the public arena around [the nomination] is embarrassing," he said. "You don't at the time feel like disappearing because it is what it is and you're going to deal with [it]. But when it comes to the media press circus, your whole life is ripped to shreds and then you definitely want out.

"Your initial instinct, particularly given the history of nominees that have had these exact problems, is to throw in the towel and decline, and I'm not sure that's the right move," said the source. "Look at him -- the whole world is looking at him. They've held up his hearing -- it can be overwhelming."

Chavez, who said her only regret from her own confirmation hearings was not being truthful from the get go, offered Geithner this advice:

"Tell the truth," she said. "Let the chips fall where they may and don't be tempted not to tell it straight."

ABC News' Jonathan Karl and The Associated Press contributed to this report.